After spending most of 2010 procrastinating, Congress finally decided to throw a wrench into estate planning in mid-December by enacting the Taxpayer Relief Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Since then, all the estate planning professionals have been scrambling to make sense of the new law and ferret out the implications it has for taxpayers now. Some of the effects of this law are summarized in a few bullet points below:
2011 Estate & Gift planning opportunities:
- The increase in the gift exemption from $1 million to $5 million means that there is greater ability to shift income producing assets to children so they will be subject to income tax at lower rates than their parents would have been paying.
- The availability of valuation discounting for marketable securities held in partnerships and LLCs may go away. If inclined, make gifts of Limited Partnership or LLC interests sooner, rather than later, before the law changes, eliminating this opportunity.
- There is strong indication of a possible minimum Grantor Retained Annuity (GRAT) term of 10 years. If interested in the short-term GRAT technique, establish your GRAT before the law changes.
- For decedents who died in 2010, we can assist the estate attorney in analyzing whether the estate should be subject to estate tax and receive the full step-up in basis, or, conversely, pay no estate tax and use modified carryover basis which could result in capital gains tax in the future.
- For decedents who died in 2010 leaving surviving spouses, we can assist in determining whether the surviving spouse should disclaim any assets, so that a credit shelter trust can be funded and thus escape future estate tax on any appreciation. Doing so would also allow use of the first spouse’s available Generation Skipping Tax (GST) exemption, instead of wasting it.
- In 2011 and 2012, executors will have to weigh the use of credit shelter trusts vs. relying on exemption portability.
- When revising Wills or Trusts, consider language that addresses the portability feature along with how the executor should deal with it.
The new law is still being analyzed and dissected by experts in the estate planning field, as well as by members of congress. No doubt, there will be technical corrections passed, perhaps as early as this year. Stay tuned for updates on how these and future changes will affect your estate plan.
